New York and Texas remain the most expensive states for mortgage closing costs, according to Bankrate.com's annual mortgage fee survey.

In last year's closing costs survey, Texas was most expensive and New York was second. This year, the order was reversed. In four of the past five years, the two states have occupied the two top spots.

Utah, California and Alaska round off the top five most expensive states.

Closing Costs Study

Arkansas was the least expensive state in this year's closing costs survey, followed by North Carolina, Iowa, Montana and Wisconsin. There was no consistency at the bottom of the rankings; in 2009, five completely different states occupied the least-expensive rungs.

Big jump in fees?

On average, the origination and third-party fees on a $200,000 purchase mortgage added up to $3,741 in this year's survey. That's a 36.6 percent increase over last year's average of $2,739.

Fees charged directly by lenders went up 22.8 percent, while fees charged by third parties -- for things such as appraisals and title insurance -- rose 47.2 percent.

Did fees really go up that much? Probably not. Lenders say fees did rise -- but modestly. A more fundamental change happened this year: The government began requiring lenders to provide accurate good faith estimates of closing costs, or GFEs.

Before this year, lenders were not penalized for underestimating fees in the good faith estimate. Now they are penalized for lowballing fees.

What about overestimating fees? Regulators discourage lenders from overestimating third-party fees, but there are no penalties for doing so.

Because Bankrate's survey takes its numbers from online GFEs, some of this year's increase can be attributed to the regulatory requirement for higher accuracy.

Lenders say they strived to hold the line of their own fees, even though their costs have gone up because they have to devote more labor into scrutinizing every loan. Regulators, as well as Fannie Mae and Freddie Mac, require each loan to undergo more oversight this year than previously.

"You're doing a full-blown audit on every file," says Brian Koss, executive vice president of Mortgage Network, in Danvers, Mass.

More labor to get loan

Until this year, about 10 percent of mortgages were double-checked after they closed, Koss says. But under Fannie Mae's so-called Loan Quality Initiative, every applicant's tax documents are checked against an IRS transcript. Lenders match up Social Security numbers, conduct fraud checks, and pull credit reports just after application and right before closing.

"Just to do one loan is time-consuming now, with all the compliance and paperwork. Labor is a true cost."

Not all of that cost is passed on to consumers. Lenders have "healthy" profit margins on new mortgages, says Anthony Hsieh, CEO of loanDepot.com, an online lender based in Irvine, Calif.

"Hard costs to the consumer, which is equaling closing costs, have not increased," Hsieh says. "So the healthier margins in the business are currently absorbing this type of charge."

It's a different story with third-party fees. Title insurance costs more in this year's survey. Several lenders quoted charges for buyer's mortgage insurance, whereas in previous years they had charged only for lender's mortgage insurance.

Borrowers can comparison-shop for third-party fees. The most profitable item to shop for is title insurance, which can vary substantially from insurer to insurer. Consumers increasingly understand this, says Tim Dwyer, CEO of EntitleDirect.com, an online seller of title insurance.

"We noticed a pickup in Google searches," Dwyer says. "And people shopping for title insurance has, plain and simple, increased."

Survey facts

Bankrate's survey counts origination fees charged by the lender, as well as fees charged by third parties. The survey excludes property taxes, recording fees, homeowners insurance and prepaid items such as a partial month's mortgage interest. It doesn't include any discount points.

Origination fees charged directly by lenders averaged $1,463 in this year's survey, 22.8 percent higher than 2009's average of $1,192.

Average total third-party fees rose 47.2 percent, to $2,277 in 2010 from 2009's average of $1,547.

The annual survey of online lenders is conducted by obtaining online good faith estimates for a $200,000 mortgage in the most populous city in each state, plus Washington, D.C. (The exception is California, where San Francisco is surveyed in addition to Los Angeles.)

The hypothetical $200,000 loan is a purchase mortgage on a $250,000 for a borrower with excellent credit.

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